Why Tokenize a Commercial Real Estate? Part 2

· Real Estate

Technology has become so intertwined in all walks of our everyday life that it can no longer be viewed as a separate field. Almost all verticals have started to incorporate the benefits of Technology in different segments. Technologies have changed the way we communicate, travel, live, purchase and even find the love of our lives. The advantages of automation, accuracy, and speed make technology a boon in many spheres, and finance, without question, is one among them.

This paradigm shift is evident in the way a lot of renowned Financial Institutions have started to shift their focus on technology right at the recruitment strategy. These institutions do not just want a person who knows the industry but looks forward to a person who also knows the technology and this has created a huge demand for developers and software engineers, especially the ones who specialize in the field of security and automation.

Blockchain - not a block after all!

The blockchain is a revolution that is not only fuelling but transforming Finance. Blockchain Has paved way for the phenomenon of tokenization which has made the investment industry more democratic. When it comes to markets likereal estate tokenization brings in a lot of advantages like liquidity and cutting down of intermediary costs.

While we have discussed the aspect of liquidity in the first part of a series on tokenizing commercial real estate, we will look in detail about the technical attributes of security tokens and how they can optimize the investor experience.

Smart contracts

It is a general rule that the higher the number of parties involved in a transaction, the more time it takes for the process to complete, with a considerable expense. Real estate is one of the most party-intense asset classes were bankers, lawyers brokers, and government officials have to fall in place to facilitate any security lifecycle events.

The need for all these parties can be eliminated by bringing in smart contracts. Smart contracts make the process more efficient and quick since there are very few entities involved. In our vision to create a token system for commercial real estate, we intend to completely rely on smart contracts to facilitate the transaction between shareholders and the fund. We will, however, not consider using blockchain Technology for implementing strategies. We believe that the acquisition of property should be through the conventional means.

Compliance and regulatory transparency

The blockchain system facilitates the recording of transaction information on distributed ledger which eliminates the need for clearing houses. The decentralization and the transparency that is brought about by the distributed ledger facilitates the execution of all the needed functionalities.

Smart contracts can be embedded with codes that Enforce regulatory compliance measures like KYC and AML. the regular auditing process mandated by many regulatory compliances can be automated at a fractional cost, time and effort.

NAV-based trading

Net asset value is defined as the value per share of any fund at a given date or time which is based on the total value of all the securities in the portfolio, the liabilities and the number of outstanding fund shares. It is observed that the net asset value does not depend on many external factors. We expect the tokens of our commercial real estate fund to be traded in a price that is proportional to the net asset value similar to REITs.

However, bringing in the fact that the tokens are traded in the secondary cryptocurrency market, fluctuations in the demand and supply might be unavoidable. The tokens will also trade on multiple decentralized and centralized exchanges that are registered with the SEC.

Like any other asset, it is the demand and supply in the market that determines the prices of the tokens. While the uncertainties involved might not be viewed in a positive light, volatility also paves way for profiteering opportunities.

Blockchain App Factory’s entry

Blockchain app factory utilizes blockchain technology to disrupt and revolutionized the traditional perspective of investing in commercial real estate. Our understanding that spans all the involved domains including Technology, market, finance, securities, and thelegal requirementsgives us a considerable competitive edge in creating one of the most robust real estate trading funds. Our commitment to security and establishing compliance with the regulations ensure that your investment is not only safe but is also planted in a place where it is used to treat you the dividends.